++ Back in my college days, I played poker. A lot of poker, at high stakes. I played online, in Atlantic City, in underground Philadelphia poker clubs, and against other UPenn undergrads. I was a very good player, but I had a few college friends who were objectively better. They were better at every aspect of the game…except one: table selection. And because of that one weakness, a couple of them were constantly broke.

++ These young poker players would make tens of thousands of dollars playing against “fish”, but would then take their winnings and sit down with the very best players in the world. They would challenge the best professionals, like Phil Ivey, to high stakes heads up games. Inevitably, they’d eventually lose to the superior players and often they’d lose everything. Then they’d borrow a few thousand dollars from friends and rebuild, only to lose it all again against the top pros.

++ I too occasionally tested myself against the best in the world, but I knew I was paying for a lesson, and would only sacrifice a small percentage of my winnings. I spent most of my time playing against weaker players. I realized early on that table selection was a part of poker too, and there was no shame in using that as a critical part of playing profitable poker.

++ “Table selection” refers to choosing a poker table at which to play. And it, more than anything else, determines whether you’re likely to end up a winner or a loser. Unless you’re the very best or very worst in the world, your expected value depends on your opponents. If you’re the 10th best player in the world but only play against the top 9 professionals, you’ll go broke. If you’re a mediocre player but exclusively play against even worse players, you’ll be profitable.

++ This concept applies throughout life. Venture capitalists know it’s a bad idea to invest in companies trying to beat Amazon at its own game. And as a trader, there are some tables I want to sit at, and others that I want to avoid.

++ Trading in many traditional markets is like sitting down at a table of the top professionals. It’s possible to win as a long/short equity trader, but you’ve got to be among the very best in the world. In contrast, cryptocurrency trading is currently like sitting at a table of weak players; there may be the occasional professional, but we’re not competing with the professional. Rather, we’re playing against the price insensitive retail investor – the person who panic sells BTC at $1800 that has never heard of BIP 91, or the person who buys ETH on margin at $400 without a glance at the network capacity or scaling roadmap. We’re not trying to impress with complex trade ideas. We’re not trying to show off by out-thinking other professionals. We’re here to win.

++ In practice, this means that we’re flexible. Back in April I was sitting at the ICO table. I invested in the Cosmos Network’s Atom token at an attractive valuation. Over the following month, the ICO table got much more competitive. Initial valuations skyrocketed as investor capital flooded into the space. And a great many of the professionals entering cryptocurrency are currently focused on ICOs. So…for now at least, I’m not. This isn’t to say that there aren’t attractive ICO opportunities – there are. But I see softer tables at the moment.

++ Table selection requires that we banish our egos. Avoid the temptation to compete against the best (even if you think you are the best.) Choose your opponents carefully.

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About Ari Paul

Ari Paul is co-founder and CIO of BlockTower Capital.
He was previously a portfolio manager for the University of Chicago's $8 billion endowment, and a derivatives market maker and proprietary trader for Susquehanna International Group (SIG).
Ari earned a BA in political science from the University of Pennsylvania, and an MBA from the University of Chicago with concentrations in economics, entrepreneurship, strategic management, and econometrics & statistics. Ari is a CFA charterholder.

What do you mean? Is an exchange a table? Or are the coins tables? My take on this is I should be hustling my bitcoins on Craigslist, is that the message you intended? How did you choose a good table? This article is very vague.

Deliberately vague. “The table” can be anything, although in the essay I gave the example of ICO investing as one specific table that I chose to sat at in the past, but not now.

And the table could indeed refer to an exchange – if all the pros are on GDAX and all the amateurs were on Gemini, you’d probably prefer to trade on the latter, for example – but I’m not making that claim.

“Unless you’re the very best or very worst in the world, your expected value depends on your opponents.”
That is FALSE. The theory of poker first chapter of the book, your only edge comes from your opponents mistakes. Everyone gets the same cards, you only profit when your opponent misplay their hands. If everyone played perfectly they would all lose to the rake. The very best player in the world also has their expected value depending on their opponents. So the best player playing against the fish has a higher expectation then when playing against other world class players even if he always has the edge and is +ev in all games.
Table selection is poker 101 and so is expected value not coming from the cards you’re dealt but profiting from opponents playing their hands poorly. I don’t think you were very good at poker if your friends who were better than you didn’t know about or follow table selection, or that you act like any profitable player thinks there is “shame” in seeking weaker players. And considering your background in economics and trading I don’t understand how you could think the laws of expected value don’t apply to the very best player in the world.
You also didn’t mention which type of poker but I’d guess you’re talking about no limit. The worst player can go allin and short stack eliminating the some advantage of the skilled players so for them too table selection matters. Average thinking moderatly skilled players can be beaten with simple short stack all in rules, which is why many online sites changed rules to keep the majority of their players happy so these paint by numbers short stack all in players couldn’t ruin their game. The pure recreational gambler expected value is zero but the fish will get skinned faster the more competent the competition. So for best or worst, EV depends on your opponents, period.
Your analogy with trading crypto makes little sense. And I’ve followed you on twitter, here’s a hint on what the market in crypto wants, to make money. There is no market demand for smart contracts or decentralized storage or whatever ICO hype, the entire crypto space is looking for one thing, fast money. The market demand is for profit. Tell them it’s in smart contracts money will pour into smart contracts even if nobody uses them or wants them let alone understands what they are. Look into the history of Dogecoin and you’ll understand altcoin market. It’s all about pump and dump greed, not about anything else. Bitcoin is the only innovation so far, and even that price is based on speculation not any of the economies online that use it, like online poker for example….

You’re right – should have phrased “your expected value depends on” as “your expected outcome” in the binary sense. If you’re the best player in the world – you will end up a winner regardless of your opponents, and if you’re the worst, you’ll end up a loser.

The majority of the essay expounds on the point that you echoed – that your opponents determine your outcome.

Noting that crypto markets are wildly inefficient and saying the analogy to poker doesn’t hold is a bit weird. I’m guessing you started playing after the online poker bust. I played mostly in 2002-2006 when the almost comical bad play in poker seemed quite a bit like crypto seems now. When I found the right table, even at high stakes, I had opponents capping every street in 4-way pots. I assumed they were drunk or heavily tilted. Of course, poker became much tougher over time as the fish went broke and the decent players got better. Same will happen in crypto.

Reblogged this on Preston Byrne and commented:
“…we’re playing against the price insensitive retail investor – the person who panic sells BTC at $1800 that has never heard of BIP 91, or the person who buys ETH on margin at $400 without a glance at the network capacity or scaling roadmap. We’re not trying to impress with complex trade ideas. We’re not trying to show off by out-thinking other professionals. We’re here to win.”

Great post from Ari. But illustrates an important point: this is why public offering rules exist.

Nice post, would be interested in seeing a next one on those softer tables in crypto and how you view them.

I’m not fully agreed with sitting out fully but the risk/reward for most of these is terrible given the valuations getting pumped. Let alone the simple fact that most of thaose raising tens of millions have never excuted as operators in startups with a fraction of the funding.

I can relate very well to your thoughts, being a poker pro myself. I’m always actively looking for crypto trade where my EV is highest (and where the most « dumb » is playing)

If I may ask, how did you manage to make the move from poker pro to crypto HF manager? Your journey is inspiring and I’m looking to achieve a similar fate (maybe join an existing crypto fund in the first place)

I don’t have a tech background but got finance degrees from one of Europe’s best business school and used to work in private equity. Any insights appreciated